Reference no: EM132261132
Introduction to Business Law - Fundamentals of Business Law, 9th:
As the text points out on page 509, the Texas Gulf Sulphur case is one of the most notable insider trading cases.
As you can see, the case involves not unexpected traits of greediness but also at play are notions of the fiduciary duties which corporate officers owe to their corporations and the shareholders of the corporations. Not included in the case excerpt in your text: When the ore strike was detected in Canada, TGS (Texas Gulf Sulphur) began buying up Canadian land so that TGS could more easily exploit the mineral content under the surface of the land. So there was a very good justification for NOT going public with the mineral discovery – to go public would be to tip off Canadian landowners of the value of the land to TGS, thus inducing the landowners to drive a more expensive bargain for the land. When accused of engaging in a 10b-5 scheme, the officers defended their conduct by arguing that since such ore strikes are always highly speculative, the information they possessed as to the discoveries and the efforts to buy up the Canadian land was not material – and in order to qualify as a fiduciary with inside information for 10b-5 purposes, the information must be not only “not generally known” to the public, but it must also be “material” – the kind of information that would be important to a reasonable prudent investor who was trying to decide whether to invest in TGS or not.
Discuss the problems faced by the officers who bought TGS stock BEFORE the public found out about the mineral strike. The court ultimately held that the knowledge of the strike and the land acquisition efforts was material, thus the officers were within 10b-5 territory.
Discuss the alternative duties thereby imposed on the officers by Rule 10b-5; next discuss why both of those options were unpalatable to those officers – keeping in mind the fiduciary duties expected of corporate officers. Conclude by discussing whether the officers had any legal way out of their self-imposed quandary.